Are millennials financially wiser than their parents? Find out

They need to be seen as sui generis, yet follow the herd as investors. They may not have matured as investors, but love to invest in themselves.

By Riju Mehta, with Rimme Dirchi

Gen ‘Y’ is an apt moniker for a generation that has grown to question financial norms. More banally referred to as ‘Millennials’, the tag is in keeping with their arrival at the turn of the millennium (born between 1981 and 2000). A bridge between Gen X (mid-’60s to early ’80s), that slogged its way out of a poverty-laden past, and Gen Z (mid-’90s to mid-2000s), the pampered progeny that breathes tech and wants for little, millennials couldn’t have timed their entry better.

Stepping into a country that was shrugging off financial inertia and rushing into the promise of riches, they were in the right place, at the right time. They have surged with the startups, gyrated into the gig economy, embraced the markets, and wizened up after the global crash. “They are completely different from any other generation that India has seen so far, be it their sociological and demographic profile or the financial eco-system,” says Nitin Vyakaranam, CEO, ArthaYantra.

At 440 million, they form about 34% of population of India and 46% of the workforce. A force to be reckoned with, they are also a paradox beyond parallel in the personal finance space. Renting is preferable to purchasing, be it a car or a house, but buying a house is still the biggest aspiration. Parents are not to be heeded, yet traditional insurance plans must be bought on their prodding.

They need to be seen as sui generis, yet follow the herd as investors. They may not have matured as investors, but love to invest in themselves. They are getting married late, spending a lot on their education, and spending a lot, period. Yet, most are starting to save early. Living on credit is de rigueur, yet the finances must be in order. Vacationing is no trite goal to be trifled with, but kids’ goals must not be compromised.

Anatomy of the Indian Millennial ((a.k.a. GEN Y)

18-35 year olds Born between Early 1980s and 2000.

440 million or 1/3rd of the total population.

Form 46% of the workforce

Contribute 70% to the total household income.

Wealth is the top life goal for 80% of millennials.

91% millennials believe in making their own fi nancial decisions.

40% of male millennials would make all their purchases online if they could.

28% millennials eat out at least once a month.

36% of Indian millennials have a fi tness app installed on their phones.

Borne of Gen X, a generation that would rather save than spend and buy rather than borrow, Gen Y stands out in stark contrast. Still, they can teach a thing or two to their parents about being open to investing in equity, about the need to buy term plans, about maintaining work-life balance.

“This generation is more sensible than the previous one but is prone to a lot of financial traps. If they can navigate these, they will do well,” sums up Jayant Pai, Head, Marketing, PPFAS Mutual Fund.

In the following pages, we take you through the financial path the millennials are taking, the things they are getting right and the money lessons they need to learn. If you are a millennial and are not on the right financial track, it’s good time to start asking Y.

Goals

Most millennials are not thinking long term and it is probably a function of their age and lifestage. In the 20-35 year age bracket, “they are single for a longer period, have fewer responsibilities, are spending-oriented and, hence, have a short-term view”, says Vyakaranam.

Unlike Gen X, who started saving for their long-term goals—house, children’s education and weddings, retirement— the day they started working, Gen Y puts these off for later. What they are focusing on instead are cars, vacations, smartphones and electronic gadgets, not necessarily in that order.

Among long-term goals, buying a house is the biggest aspiration for millennials, as per the BankBazaar survey, Aspiration Index 2018 – Decoding Indian Millennials, among 1,551 people in the 25-35 age group.

However, the large ticket size is prohibitive, and most are happy living on rent because it doesn’t tie them down and clip their career ambitions. “Since both I and my wife are fresh in our jobs, we don’t want to tie ourselves down to one place,” says 27-year-old Sabari Harsh, who currently stays in Bengaluru.

In Pic:Sabari Harsh 27, Manager, Bengaluru“I am currently focusing on settling in my newly married life. So my goals are inclined towards short- and medium-term goals as of now.”GoalsShort term:Buying a car, vacation.Long term:Buying a flat (retirement and kids’ goals will come after 30).

InsuranceLife:Traditional plan of Rs 16 lakh.Health:Basic plan of Rs 3 lakh by employerMillennials may also have retirement on their mind, but it’s not on the financial radar yet. “Since I have recently married, I am focusing on settling down. I will probably start planning for retirement after I turn 30,” says Harsh. Adds Kolkata-based Raunak Ramuka: “I’m only 28 and it is too early for me to plan for my retirement. I will do it after I’m 45.”

In Pic:Raunak Ramuka 29, Chartered Accountant, Kolkata"My financial goal is to be able to beat inflation, beat the Nifty returns that year, and earn at least 7-8% extra."

InsuranceLife:Term plan of Rs 60 lakh.Health:Basic health plan of Rs 5 lakh.Are they on the right track?While it may seem easy to postpone saving for a goal that is 25-30 years away, it will make the task easier if one starts putting away a little sum, even if it is 10% of the income, towards long-term goals like retirement right from the start. This is the reason Gurgaon-based Upasna Singh is on the right track; she began saving 5% of her income when she started working at 23 and has increased it to 30%, most of it in equity, at 29.

In Pic:Upasna Singh 29, Manager, Gurgaon"When I was in my first job, I would diligently invest at least 5% of my income. Over time, with the rise in my salary, I have increased the investible income to 30%."

GoalsShort term: Travel (every six months). Long term:Wealth creation (blanket savings for at least 10 years after retirement).

“Millennials are asking the right questions when it comes to investing,” says Financial Planner Dilshad Billimoria. “With higher salary packages, most do their due diligence before investing because information is available like never before,” he adds.

“They are definitely more open-minded and have many more ready sources of information than the previous generation,” agrees Pai. “This is the reason that they are investing in stocks and mutual funds even if their parents tell them not to. At the same time, to avoid conflict, they open fixed deposits or buy traditional insurance policies,” he adds.

What this means is that though they are inadvertently diversifying their portfolios, they do not always know what they are doing. Consider 29-year-old Divya Shah from Ahmedabad, who is investing only 30% of her investible income in equity, while 70% goes in debt even though her age and goal horizons warrant a higher equity exposure. More importantly, she is banking on PPF for a long-term goal like her daughter’s education, while investing in mutual funds for a short-term goal like travel. On the other hand, 29-year-old Upasna Singh is on the right track with an 83% exposure to equity.

In Pic:Divya Shah 29, Human Resources, Ahmedabad"Our parents are from a time when priorities were different. Buying gold and acquiring land was the extent of one’s investments, and there was pension for post-retirement life."

InsuranceLife:None, but plans to buy Rs 2 crore term plan soon.Health:Family floater plan of Rs 6 lakh (husband). Also covered by her and spouse’s employers.“Within millennials, there are three segments,” says Vyakaranam. One, who will do exactly what their parents tell them to and invest mostly in conservative instruments. Two, the independent ones who will try out new things, but will also talk to their parents and invest in traditional avenues. Three, the complete rebels, who will not listen to their parents and even invest in bitcoins.

Ramuka is clearly independent, intending to create wealth from the market and puts 75% of his savings in stocks and equity funds, while 25% goes in debt funds.

“Most of them are likely to make mistakes while investing and realise it later, but at least they are willing to experiment,” says Pai.

Are they on the right track?It’s a hit and trial for most millennials because nobody has taught them how to invest. The important thing, however, is that they are open to learning and trying new avenues of investing. Combine this with various channels of information and they will gradually get on track, synchronising their investing instruments with the goals to achieve them.

Spending

A clear unifier for millennials is their penchant for spending, be it on travel, gadgets or apparel, a pattern captured well in Deloitte’s report, ‘Trendsetting millennials: Redefining the consumer story’. The lower inclination towards saving, which accounts for 10% of the overall or any incremental income, indicates a shift towards the consumption economy rather than savings economy, a predominant feature of Gen X.

Millennials spend mostly on essentials, followed by education and utilities, says the report. Of the incremental income, 32.7% goes into eating out and entertainment, 21.4% on apparel and accessories, and 11.2% on electronics.

Travel is another preoccupation that takes up much of their income and features in practically every millennial’s short-term goals. “I want to travel every six months and make it a point to save for it,” says Singh. This passion for vacationing is in jarring contrast to Gen X, who considered it a frivolous expense, best forsaken in favour of the crucial long-term goals.

One reason millennials are big on spending is because they have higher disposable incomes and fewer responsibilities. “It is also a function of the ease of borrowing, not just in terms of taking loans, but also maxing out their credit cards,” says Pai. Agrees Vyakaranam: “Most of them are buying new, expensive smartphones every 6-9 months not just because they want to be seen with one, but because the market is flooded with phones and are available on easy EMIs.”

According to a study conducted by ET RICS (Research, Insights & Consumer Survey), more than half of the mobile handset users in urban India are planning to change their mobile devices in the next six months and almost 65% of these are millennials. This was not even an option for Gen X.

This may not always be a good thing since not everyone is not aware about the dangers of rolling over the credit card bill and it can send them hurtling towards a debt trap.

The good thing, though, is that most millennials understand the need to start saving early, whether they get the investing instrument right or not. So while Singh saves nearly 30% and Shah puts in 40%, Ramuka manages to squirrel away as high as 60% of his income in various instruments ranging from mutual funds and stocks to fixed deposits, PPF, EPF and NPS.

Are they on the right track?It may seem as if the spending habit could prove to be a bane for millennials, disrupting their financial plans and spiralling them into a debt trap if they don’t keep a check on their credit card spending.

However, it is very likely a factor of their age and situation in life, and financial responsibilities after marriage could pare the expenses and trigger the saving mode in earnest. So unless the millennials continue to be extravagant at the expense of crucial financial goals, it shouldn’t be a cause for concern.

Insurance

Insurance is another area that has seen a shift in attitudes. Gen X was irrevocably tied to traditional life insurance policies, confusing insurance with investment, and using these to fund most of their life goals. This implied that not only did they remain without an adequate life cover, but also had to be content with low returns. “For our parents, insurance was never a part of their essential needs,” says Shah.

The choice of traditional plans was primarily the outcome of an inordinate fear of the markets. “Things were a lot harder for Gen X because of lack of readily available information and, hence, they looked for safer and more prudent options,” explains Billimoria.

“The millennials are more open to buying term plans and, importantly, not having money at the end of the term,” says Pai. This is the reason Shah is set to buy a term plan for herself soon. “I’m planning to buy a `2 crore term plan, splitting it between LIC and a private insurer. Since critical illness plans are also available along with the term plan, I shall consider that as well,” she says.

Vyakaranam doesn’t seem so optimistic. “The awareness level is still very low and unless there is a fundamental shift in the way information is dispensed by the system, millennials will continue to make the same mistakes and keep buying traditional plans and Ulips,” he says.

As for health insurance, millennials are still relying on the covers provided by their employers, much like their parents. The awareness for independent health plans is rising only gradually. “I have a `3 lakh cover by my company, and since I got married recently, I am planning to take a family floater plan even though my wife also has cover by her employer,” says Harsh.

Are they on the right track?While they seem to be drifting towards a greater realisation of the need for buying insurance, be it term plans or health covers, the trend is confined to large metros and cities. Besides, the parents’ influence is still strong and most end up buying traditional plans to appease the Gen X. It will take a concerted effort by millennials and the insurance industry to ratchet up these awareness levels.

Career

The job scenario has undergone a paradigm change in the past decade or so and millennials seem to have readily adjusted to the new-found work ethic and rules. Being a part of the gig economy entails more flexible work location and hours, and Gen Y is clearly pushing the envelope here.

“With more Internet jobs which do not require a fixed location or work hours, all their decisions are being affected by their choice of careers,” says Vyakaranam. “They don’t want to live in larger cities, picking Goa or Coimbatore or Jaipur instead, because location is irrelevant. They don’t want to be in the rat race and retire early, or not retire at all,” he adds.

“The downside of this heightened connectivity is that the office never leaves millennials. They are in constant touch with office through e-mails, via Skype or video conferencing,” say Pai.

Millennials are also changing jobs faster, lured by lucre or work conditions. According to the Deloitte Millennial Survey 2018, good pay and positive work culture attract millennials, but diversity and flexibility are key to keeping them happy. This may be the reason that most of them have changed at least 2-3 jobs by the time they hit their 30s. “This is my fourth job in 12 years. The ideal period for a job change is 3-4 years, but it also depends on growth, job satisfaction and work culture,” says Shah.

Contrast this with the millennials’ parents, who changed only 2-3 jobs, if not fewer, in their entire careers. “They looked more for stability and retirement benefits while considering a job,” adds Shah.

Are they on the right track?There is no clear distinction between right and wrong when it comes to career decisions for millennials because they are a product of the eco-system, which is changing radically and faster. What they will need to focus on is adapting quickly to the changing scenario and upgrading their skills at a faster pace. This is where they are on the right track. “Millennials are investing a lot in their education, continuing to study and get additional certification even as they are working,” says Vyakaranam.

Gen Y vs Gen XThere is a marked variation in the fi nancial choices of the two generations as these are a function of their ages and eco-systems.

Financial focusGen Y:Loves to spend. Buys things on credit. Travel is the new passion. Prefers to rent.Gen X:Focused on saving. Avoided loans. Travel spend was negligible.

CareerGen Y:Loves job-hopping. Part of gig economy. Flexibility in work hours and location.Gen X:Stability was critical. 9-5 jobs. Stuck to a job for long term.

InsuranceGen Y:Growing awareness for term plans, but being young, don’t feel need for health insurance yet.Gen X:Bought traditional life insurance plans as investment. No concept of term plan. Some bought health insurance.

Millennials are clearly living their financial, social and professional lives online, be it carrying out work assignments, conducting banking transactions, shopping, paying bills, making bookings, filing tax returns or interacting on social media. “When it comes to making payments, they are not satisfied with Neft transactions; they want instant, peer-to-peer transactions in real time,” says Pai.

Little wonder then that Gen Y is craving gadgets at the pace that it does. Latest smartphones and laptops are acquired every couple of years to heighten and simplify the online experience. “I cannot think of a life without my smartphone, tabs and Internet,” says Ramuka, who changes his mobile every year and conducts 80-90% of his transactions online or on phone.

Compare this with Gen X, who are only now acquiring a degree of comfort with online transactions and interactions. While it has simplified their financial lives, they are unlikely to acquire the same level of ease with smartphones or laptops. “Like most parents, mine are not too tech-savvy and rely on me for their online transactions,” reveals Ramuka.

Are they on the right track?Since millennials are a product of the digital age, they have glided into it without effort. Since the way forward is clearly online, they are on the right track and would do well to initiate their parents into it as well.

What the millennials can also teach Gen X is to be more open-minded about their investment choices, and in turn, learn from them the benefit of starting saving more and from an early age.